The column I wrote last month in The Australian about Austar’s decision to delete the BBC from its programming produced the largest ever response I have had from the general public.
I argued that Austar displayed a very high-handed attitude in choosing to delete programmes arbitrarily, just when consumers are beginning to demand greater choices.
I consider that the pay TV model used by all three operators is flawed, since it forces customers to accept a bundle of products, most of which they would not accept if they were given a choice (Think Internet!). Of course, this makes good sense to the operators, since it enables them to charge a higher price for multiple products.
I have discussed this issue with the regulatory authority and it is my understanding that Austar is not breaching the trade practices legislation known as third line forcing. However the regulators are watching developments with interest.
At a recent industry function Austar’s company lawyer confronted me about the views I had expressed, but I told her not to shoot the messenger. I have forwarded to Austar the many comments I received (no names attached, of course, and with permission) in the hope that these will encourage the company to create a service that is more attuned to customer needs. Pay TV viewers generally don’t use even half the programmes they receive, and consequently consider they have wasted money. They feel cheated and this does not foster good customer relations. I have even heard people say they would be prepared to pay the same price, if only they could make their own choices.
It is also interesting to note that all three operators are now facing a serious problem in trying to entice new customers to their services.
Way back in 1995 I stated that if pay TV charges of approximately $25 per month were to be introduced 25% market penetration should be reached quite easily. So I was taken aback by the initial success of the services that were introduced, which involved some of the highest pay TV charge in the world. I began to think that I had been unduly pessimistic. However, now that over one million households are connected the growth is slowing down significantly, and I can confidently restate my view that satisfactory market penetration can only be achieved through price changes.
If the companies really want to keep their prices high they will have to throw in extra services, such as high-speed Internet access. This, however, could cost another $60 to $80 per month and I think it is highly unlikely that the majority of users will accept this. The operators do have an advantage in that pay TV users and high-speed Internet users are often demographically different, which will make it possible for them to target two different groups.
Nevertheless, given the current pricing model, I don’t foresee a penetration of more than 15% and it appears that for the time being we will have to live with the high charges.
However, within the next 12-18 months we will see a range of new high-speed Internet activities from ISPs and telcos that will enable movies, TV channels and other video-based products to be delivered via the Internet, bypassing the incumbent broadcasting and pay TV industry. Initially the impact will be small, but over time these new companies will be able to build up a relationship with their customers that is far superior to the relationship between the incumbents and their customers.
These new services will place the users in the driver’s seat and give them the flexibility of choice they require.
So, the longer the incumbents hang onto their expensive bundled products the more likely they are to become the long-term losers in this market.
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