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The Attack of the Late Adopters - Broadcasting & Cable

The Attack of the Late Adopters

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In 1982 Tele-Communications Inc. (TCI) was one of the top three cable operators and one of the first to embrace “addressable boxes” for the purpose of adding channels. It could send “electronic hits” to its boxes to turn on or off premium channels.

At that time most of America only had 35 or so analog channels. The plan was brilliant. Early adopters actually lined up for blocks to get an addressable box and get new channels like MTV, The Discovery Channel, Disney and Showtime, to name a few. No one minded waiting because back then, cable was a channel starved environment. This was my first introduction to “Early Adopters”—people who will pay more and wait in line for the promise of something new and better.

Fast forward to Feb. 17, 2009, when every analog set in America is scrambled. The early adopters will be fine. Even that fifth television in the laundry room will have a cable hooked up to it.

The concern is the “late adopters,” those who have successfully avoided adding cable or satellite to their lives and have blissfully lived with a simple over-the-air television for all these years.

Nielsen, the NAB and Leichtman Research separately have concluded there are about 16 million homes, or 14% of U.S. homes, that are currently broadcast only. Many of these late adopters have responded to the NAB message to order $40 coupons for a special DTV box. However, ordering a coupon is one thing and actually going to their local Radio Shack to buy the box is another. Coupons expire 90 days after they are received and as of July 2008 about three million coupons have expired, according to Meredith Attwell Baker at the National Telecommunications and Information Administration.

Why? It's simple, really. It is because they are late adopters and those folks don't rush out and get in line. They wait and wait and wait. Their experience has been such that they can miss every new revolutionary technology introduction without being penalized.

However, this time they are going to be introduced to a concept John Malone would call a “forcing function.”

A “forcing function” is a law or an operational decision that forces people to take action. In 1990 Encore was introduced to all TCI customers with the truly efficient operational concept called “negative option.” If you did not want Encore in your house, you had to call an 800 number. When that operational decision was enforced, the switch that handled the 800 traffic failed (or “fried”) from so many calls in such a short period of time.

Switching from analog to digital, on the other hand, is a law and the FCC has fully backed it with PSAs and an informational campaign. But on Feb. 17, some will listen but most won't. Because they are late adopters.

We are currently living in an economy that is struggling. Buying a cable box or even adding no-frills “lifeline” cable service is about the last thing on the minds of most late adopters. The other fact is that late adopters comprise a majority of the poorest Americans. In other words, they are severely affected by $4 gas and food price increases. Now one of their last luxuries in life—over-the-air TV—is rendered useless without a DTV box or cable or satellite subscription.

Cable operators need to have an action plan to handle this potential wave of negative publicity if their phone lines are overwhelmed in February. Cable needs to set up Interactive Voice Response units to capture every new caller and promise them a call back within a reasonable amount of time.

Operators also need to prioritize whom they call back based on the prospects' ability to pay. From a risk analysis perspective, a cable operator should not jump for joy about all of the new business that will be coming in before they determine what the potential downside risk is for bad debt. The No. 1 goal for cable operators should be to only sign up new customers who will be good financial risks. Cable operators need to resist, or at least hedge, their temptation to sign up everyone.

For the first time in TV history there is a single day that has been mandated to stop one technology and switch to another. This is analogous to legislating that the automobile industry pick a certain date when all drivers would be required to switch from conventional gas engines to hybrids. Havoc would most certainly prevail. Unless a cable operator is prepared ahead of time, this could turn out to be a very ugly chapter that can, and should, be avoided.

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