What’s on TV? Millennials seek flexibility, affordability; not traditional cable

May 01, 2015

Denver Business Journal, KUSA-TV 9NEWS

The only thing smarter for a cable TV company than asking millennials what kind of cord-cutting video service they’d buy would be to ask some business savvy ones to come up with realistic products to attract cord cutters.

That’s what the ninth annual Cable Apprentice business case competition did Friday, pitting three teams of millennial-aged graduate students against one another from the University of Denver’s Daniels College of Business.

And the thing millennials want most from their video provider?

Not surprisingly, flexibility to watch whatever and wherever at an affordable price.

The preference was for a couple dozen channels or fewer — not the cable packages of hundreds of channels that dominate the industry today — and the ability for customers to tailor more narrow channel packages to mirror what they want to watch most.

“We think this model will become the norm,” said Emily Mitnick, one of the MBA students competing.

The Rocky Mountain Cable Association organized the contest, holding it at Comcast Corp.’s video production center in Littleton. It brought together industry and students from a university closely connected to the cable TV.

DU’s business college is named for Bill Daniels, the Denver cable TV finance pioneer; DU’s campus is home to the Cable Center, a gathering spot and resource for the cable industry nationwide; and various campus facilities bear the names of cable industry executives who helped launch the modern cable industry.

A trio of three-member teams presented their research and proposed cable video products to a panel of cable industry executives and experts. On the line: a $4,500 prize for the team presenting the proposal judges decided was best.

The teams researched and formed proposals over five weeks. It was a real-world exercise.

Most of the competing students don’t subscribe to cable, but they have mobiles phones and Internet service.

Just before the teams got their assignment, Douglas County-based Dish Network Corp. (Nasdaq: DISH) launched its Sling TV over-the-top video service. It was the first stand-alone streaming video service offered by a cable or satellite company.

Sling TV lets viewers buy 20-plus channels of streaming, live cable programs in packages starting at $20 a month. All a customer needs to sign up is a high-speed Internet connection to get Sling TV on his or her mobile phone, tablet, computer, game console, smart TV or video-streaming device

HBO soon after offered HBO Now, a standalone streaming service for its channel’s programming. A couple weeks later, Sony followed with its own service, called VUE, viewable through Playstation gaming consoles.

The DU student teams concluded 19.2 million millennials don’t subscribe to cable and are potential subscribers to “over-the-top” streaming services such as Sling TV.

Millennials also are the second-largest generation in the country and have hundreds of billions of dollars to spend. Roughly 60 percent them have subscribed to Netflix, Hulu or another leading streaming service.

How does a cable TV company or a telecom offering cable-like services respond?

Verizon Communications Inc., the telecom giant, recently launched a slimmed down, or “skinny,” cable channel package that gives to FIOS customers in its service territories new combinations of channels not normally offered in such small, affordable bundles. ESPN has sued, claiming Verizon’s skinny channel structure violates programming contracts between the companies.

Programming contracts complicate letting viewers have the flexibility to mix and match channels that DU students say is essential to winning over millennials, many of whom have proven indifferent to traditional cable TV.

The teams’ proposals were interesting in how they covered the spectrum of what a cable company might offer.

One team proposed a standalone streaming service for $17 a month with interactive ads creating another line of revenue. Another team came up with a skinny cable- and high-speed Internet service that for $39.99 a month would buy Netflix and the cable provider’s video-on-demand movie library, but the service would be limited to customers in a cable company’s geographic service area.

The final team, the Archers, split the difference. Its product would be a 16-channel streaming service to anybody across the country by an app for $35 monthly. Additional bundles of themed channels could be added for $8 a month for each genre, and the whole service could be bundled by the cable company with high-speed Internet service.

The proposal and their research won the Archers the $4,500 prize. The team seemed to have a Powerpoint slide with research that addressed every question the audience of cable industry officials asked.

The most revealing aspect of the competition for the team was digging into the cost models behind different offerings, said team member Paul Clark. He has a day job as a product manager for CSG International, a Douglas County-based technology and outsourced-services company serving the cable and satellite industry.

Calculating the business case for different kinds of products made it clear why it’s hard to give millennials what they want.

“We saw the challenges,” Clark said.

The cost modeling the team did struck judges as realistic — “eerily accurate,” according to Gary Schanman, a judge works as a senior vice president for video products for Charter Communications.

An audience member asked one of the other teams how a cable company could prevent stealing away customers from its traditional, profitable cable TV service if they started offering a cheaper streaming alternative aimed at millennials.

“What if you don’t? They’re going to go somewhere else,” replied student Tayler Canjar, noting OTT services are already out there.

But will millennials’ penchant for slimmer streaming options fade as they get older, settle into houses they own and have bigger incomes?

Not completely, predicted Mengyin “Ivy” Liu, a member of the winning Archers team.

“When millennials have a whole family, they’re lifestyles will change,” she said. “But they’re still digital natives. They’re going to want convenience and flexibility.”