Cable TV Suffers From Higher Rate Increases, Lower Satisfaction

A price war could help satellite TV service operators counteract the growing digital cable penetration. A 2003 report from J.D. Power and Associates reveals that the barely significant monthly price increase in satellite TV services could lead the migration from cable TV.

Cable TV vs. Satellite TV: Who’s Watching and
What Are They Paying?
  Cable TV Satellite TV
1998 Market Share 68% 7%
2003 Market Share 60% 17%
Change Since 1998 -8% +10%
1998 Average Monthly Price $35.15 $45.30
2003 Average Monthly Price $49.62 $48.93
Change Since 1998 +41% +8%
Source: J.D. Power and Associates

“Digital cable hasn’t turned out to be the solution the cable industry needed to stem the tide of migration to satellite providers,” said Steve Kirkeby, senior director of telecommunications research at J.D. Power and Associates.

The study attributes the swelling cable subscription prices to upgraded and additional services such as digital TV, Video on Demand (VoD) [define] and high definition TV. Findings from Jupiter Research (a unit of this site’s corporate parent) indicate that Subscription Video on Demand (SVoD) will be a key driver to generating profits and attracting new customers to digital premium services.

Lydia Loizides, senior analyst at Jupiter Research expects the VoD market to grow from $293 million in 2003 to $1.4 billion in 2007, and that of SVoD will swell from $56 million to $800 million during the same time period. Collectively, this market will grow 58 percent annually, from $349 million in 2003 to $2.2 billion in 2007.

According to Leichtman Research Group, Inc. (LRG), the growth of VoD awareness and availability is disproportionate. The firm’s examination of four markets where VoD is currently available data indicates that 90 percent of digital cable subscribers have heard of the service, yet roughly one-quarter of digital cable subscribers, and one-half of analog cable subscribers are not aware that VoD is currently available in their market.

Bruce Leichtman, president and principal analyst for LRG, cites intensified marketing efforts, along with increased content offerings, to be significant factors in increasing consumers’ use and appreciation of VoD, and he believes consumer control and convenience will be key drivers to adoption.

“VoD users particularly like the ability to start movies and programs when they want to watch them,” Leichtman notes. “While price is often given as an excuse for not having used VoD, it is more a lack of knowledge of the VoD offering, or the overall cost of cable that consumers may be concerned about rather than the specific cost of VoD.”

Cable companies can use VoD as an opportunity to emphasize customer satisfaction. Leichtman comments, “In the case of movies, I believe that the cable companies would be much better served to encourage [VoD] usage via a guarantee of the service rather than discount pricing that can reduce the value of the product.”

In the J.D. Power and Associates’ customer satisfaction survey of more than 7,300 U.S. households, it was the satellite providers — not the cable companies — that received the highest rankings among the 13 major cable and satellite TV operators that were evaluated.

DirecTV ranks highest in overall customer satisfaction performance for the second consecutive year, followed closely by DISH Network. Among the six factors that contribute to overall satisfaction, DirecTV receives top ratings in performance and reliability; cost of service; billing; and offerings and promotions. It also performs near the top in the remaining two factors: image and customer service.

Following DirecTV and DISH Network in the rankings are cable providers Cox, WideOpen West, Cable One, RCN and Time Warner, respectively.

J.D. Power and Associates’ Kirkeby commented on the findings: “Although digital cable subscribers report higher satisfaction than do analog cable subscribers, both groups dramatically trail satellite subscribers in overall customer satisfaction, with cost of service being a key issue.”

News Around the Web