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Consumers React to Hard Times

9 Mar, 2009 By: Stephanie Prange

Stephanie Prange

What will consumers do as the economy hits its worst patch since many Americans now working have been alive?

For one thing, they are likely to cut expensive monthly bills for things that aren’t essential, including entertainment. I’m likely to cut my cable subscription bill and look for the same entertainment for free online or on DVD or Blu-ray, which I can parse for the most valuable content.

Recently, my cable company tried to upgrade me for free, and then charged me about $200 without my consent for the privilege. I can tell you a $200 subscription fee catches my attention. That’s the cost of a car payment. I canceled the extras immediately.

Many other subscribers are doing the same thing or more — canceling cable altogether. They are looking at every penny that goes out of the household on a monthly basis, especially when they can get the same service for a lower price or at no charge.

That’s why the cable industry is in an uproar, because their costly service is hitting stiff competition.

“As cable networks put more and more content online for free, that will over time start eroding the subscription revenue source,” said Time Warner Cable CEO Glenn Britt, as Time Warner reported a fourth-quarter loss of 119,000 basic-cable subscribers. “The reality is we are starting to see the beginnings of core cutting where people, typically young people, are saying, ‘All I need is broadband.’”

As more and more HDTVs are directly connected to the Web  or are linking through a device such as an Xbox 360 or PlayStation 3, cable companies may find that their service is obsolete.

Where does packaged media stand in this new reality?

It’s a pretty efficient way of getting the right content to people who want it. I’d rather pay  $4 for a rental or $20 for a movie I will watch over and over again than $10 at the theater or a cable charge (monthly) for a smorgasbord of shows, only a fraction of which I will have the time or the inclination to watch.

Consumers are looking to get the best content value for their buck. In that environment, packaged media and free streaming are winners. That’s why Netflix, which combines both, is doing well.

High-priced, low-value content, offered by cable, suffers.

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