Disruption Takes Scale

Sometimes markets work. As unhappy as U.S. consumers seem always to have been with linear video services, the advent of the over the top framework is going to solve the “choice” problem. Some (industry suppliers, for example) might argue there is not a problem, given the historically high buy rates, which approached 90 percent of all homes at product peak.

At the same time, even as they bought the product at very-high rates, virtually all surveys suggested that consumers were dissatisfied. They bought, but seemed to dislike buying.

The explanation is that they had no real choice. True, they could switch from cable to satellite to telco, but the basic offers were quite similar, and there has not been too much price differentiation. Programming contracts account for much of the sameness, while “cost of goods” accounts for the roughly uniform pricing.

OTT video now offers significant choice, and more is coming. In fact, even some providers of linear TV now say the product cannot be sold at a profit, or offers very slim profits. In fact, many believe the business case for OTT video will be better than for linear video.

Though consumer happiness with subscription TV rarely, if ever, has been high, that problem is on way to solution.

Year after year, some industries simply did not fare as well as others, and subscription video has been a prime example. In fact, linear video subscription TV has in recent years ranked at the bottom (sharing that distinction with internet access services) of multi-industry satisfaction scores tracked by the American Consumer Satisfaction Index.

But that problem will be solved, to a great extent, by OTT choices being made available at scale.

And scale matters. A recent Consumer Reports survey, for example, had small providers such as EPB and Google Fiber earning the highest marks for both value and reliability. But scale is an issue. EPM only serves Chattanooga, Tenn. Google Fiber has negligible take rates.

All the linear providers with scale rank at the bottom of those survey rankings. Netflix has scale. So services such as Netflix will change the market.

We sometimes believe that small startups can disrupt whole markets. They do, but only after the firms have gained huge scale. No startup disrupted the global phone market. It took giant Apple to do that. You can make the same argument about other markets disrupted by Google, Facebook or Amazon. It takes scale to disrupt.