Wednesday, March 9, 2016

Skinny Video Bundles a Logical Response to Growiing Consumer Resistance to Price Increases

Stability of consumer spending patterns is one reason why more linear video suppliers are embracing “skinny” content bundles whose primary attribute is that they cost less.

Since linear TV now is a core “telecom” product in consumer markets, that also means consumers will evaluate their buying choices through a very sticky lens. Households and consumers tend to spend only about two to three percent of income on all communications-related products.

When one category grows--such as mobility--some other category is dropped (such as fixed network voice). If spending on high speed access or any other component grows, then something else has to give.

Ever-higher linear TV bills are no exception. Facing such trends, consumers are going to cut back, to shift spending to mobile data and fixed high speed access.

Eventually, one might argue, they also might consider spending more on mobility and less on fixed services overall, if 5G starts to offer value-price bundles that support video consumption and high speed access requirements.

That--for decades--has been a hope of many mobile executives. The fundamental reality is that consumer budgets for all communication services (and that now includes many forms of entertainment video) is rather fixed. Prices cannot rise in any category without hard choices in other areas.

Device costs also are an issue. It is not clear whether $600 or $800 smartphones come out of a “consumer electronics” or “communication services” bucket. It likely is a combination of both categories. But that also means more attention will be paid to other services to deemphasize, so the pricey smartphones can be purchased.

Though U.S. households have gradually begun spending more on communications services over the past couple of decades, between 1990 and 2008, for example, the rise was fairly slight.

Consumers boosted spending from 1.8 percent of income to about 2.3 percent of personal income. Since 2008, some studies show a further increase.

At least one study of U.K. expenditures suggests communications spending could in some cases represent 12 percent of spending, while U.S. consumer spending on communications could have increased five percent, a possible historic increase level, between 2007 and 2010.

That five percent increase represents higher spending on linear TV, mobile and fixed services. Keep in mind, that does not mean the “percent of income spent on communications,” just the increase. Note that “telephone equipment” largely represents spending on mobile phones.

In fact, if spending on mobile phones and services has grown significantly, something else has given way. Since 2007, consumer spending on mobile services (per household, average of 2.5 persons per household) has been greater than spending on fixed services, according to the U.S. Bureau of Labor Statistics.  

By 2014, in fact, about 73 percent of all “telecom” spending per household was for mobile services.

in 2014, spending per household--including telecom and audiovisual equipment and services, amounted to about 4.4 percent of household spending. It is not immediately clear where spending for high speed access appears. If not captured by government data, then it is certainly possible that household spending on communications has reached five percent, or more, in some cases. It is hard to say for certain.

But the point is that consumer ability to buy communication services is rather finite. At whatever level you believe is current (2.5 percent to five percent per household), there will be resistance to increasing the percentage of spend much more.

That means prices cannot continue to climb, for every component service, without cutbacks, someplace.

So skinny video bundles appear an ever more likely response to consumer resistance to price hikes. Given a choice between spending less on Internet access, entertainment video, mobility or fixed voice, which priorities would you have?

No comments:

Sales Friction Creates Barriers to Buying Behavior

Sales friction occurs when a sales process is: too long (the line at the grocery store) too complicated (working with real estate agents) a...