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Syd Weighs In

Why cable companies deserve our scorn

About the author

Sydney is a professor of strategy and leadership, and Dean for Executive Education,  at the Tuck School of Business at Dartmouth and the author of 16 books, including Why Smart Executives Fail. Follow him on twitter: @sydfinkelstein

(Thinkstock)

(Thinkstock)

You can have whatever you want, just as long as you buy it the way we sell it.

Top managers in cable and satellite companies are the Henry Fords of modern times — Ford famously said of his cars: “You could have any colour you wanted so long as it was black.” Cable television purveyors sell packages of channels, representing pre-selected bundles of content that maximize their revenue — and for many customers, anger.

What would happen if this changed? That’s not such a far-fetched idea. The recent battle between Time Warner Cable and the CBS broadcast network in the United States may ultimately involve some a la carte offerings to customers. Would this be the disaster cable companies have been avoiding for years? Or will it create new opportunities for them? Do they even have a choice?

First, some perspective: there is an incredible array of content available to users, from media, news, and entertainment to include ideas and products and services, we have even more to consider.

But there is also a fundamental inefficiency in connecting sellers of all that content to buyers who might want it. Sellers and buyers have only limited knowledge of the other’s existence. It’s difficult to determine the specific tastes and preferences of the many kinds of buyers. Add to that the wide range of content, the varying quality of that content and its relative availability and you get inefficiency. This is how markets form — literally as a place where buyers and sellers come together to trade.

Open markets, though, suffer from information asymmetries — you don’t always know what I’ve got to sell, how good it is and even whether it’s legitimately mine to offer. Anyone who can help reduce this uncertainty can add value to consumers. When you think about it this way, it’s incredible how many “market makers” actually provide us with valuable services.

Market makers not only extract a price for their service, but they also wrestle control of access to content from us in the process. Curators, aggregators, wikis, companies like Google that exploit big data and assorted experts have all emerged to make sense of open markets of content in ways that add value to end users, in exchange for either giving up direct access to content or for a fee — or both. Usually the consumer pays (cable TV), sometimes the seller pays (Amazon vendors) and sometimes no one pays (Wikipedia).

When consumers benefit they usually don’t mind giving up direct access; in fact, they welcome it. The paradox of choice holds that when people have almost unlimited choices, they have more difficulty deciding than when the choices are “managed” for them. Professional curators suggest content that fits what we might like. Museum curators develop collections that reflect some of their own values and preferences — and that of the intended audience. Universities have been doing this for years, of course, with professors creating content in syllabi for students.

The Huffington Post is an obvious aggregator of content. But so are department stores like Macy’s that bring a large collection of designers under one roof. Shopping malls and High Streets have been doing this for decades. BBC Capital is assembling columnists such as myself to deliver content to readers.

User-generated content is wider than wikis — collections of information that rely on user-created content. We rely on Trip Advisor, Yelp and countless other apps to help us decide what to purchase when there are a multitude of choices. And, of course, companies such as Google, Amazon, Facebook and much of the advertising industry have developed analytics that aim to offer goods and services, tailored to our interests and past behaviour.

That brings us back to cable and satellite companies. They are also curators of content, but their algorithm is based on maximising revenue, not maximising value for customers.

The best content providers always try to go directly to end users with a single-serve offering. First-run movies play in theatres first. Major boxing matches are shown on TV via pay-per-view. But the best content providers also want to maximize their returns, so they will often appear as part of a bundle of content. Managers of designer stores don’t only want to be on Fifth Avenue or the High Street, but also inside department stores, for example. When content providers have alternative outlets, they will go to them.

And that is what’s starting to happen today. Broadband allows TV shows to be available directly to consumers, via smartphones, tablets and laptops. During the 2012 summer Olympics NBC in the United States and CTV in Canada offered almost unlimited live content on the Internet, despite having invested huge sums to secure the TV rights to the event. (As it turned out, viewership for NBC’s night-time Olympics show, only a small part of which was broadcast live, had even higher ratings than anticipated. One possibility: people valued the curator function even more after having direct access to the virtually raw footage.)

When you give individual consumers extensive choice, they will value curation even more. That’s the irony in what is happening in the cable industry today. Rather than protect to the death their control of how content is distributed, executives in cable companies fail to see that selling channels a la carte before Verizon, Netflix, Apple, Google — or who knows who else does so — is a huge opportunity. One could also envision offering consumers the option of buying a single episode, just like Apple’s iTunes enables downloads of individual songs.

If it’s going to happen eventually anyway, why wouldn’t you want to take a leading position before your competitors do? Do that first, then be clever about how to bundle, curate, or otherwise aggregate content — after becoming free from past assumptions and arrangements — to maximize viewer experience.

Museums, Wikipedia, Amazon.com and department stores have figured out how to solve the paradox of too many choices in a way that adds value to them and to their customers. It’s time for executives at cable and satellite companies to change the channel.

It’s time for executives at cable and satellite companies to change the channel.