It stands to reason that an industry as successful as cable would have its imitators, hangers-on and wanna-be’s — you know, organizations that walk and talk like real companies. That comes with the turf. And more often than not, such pretenders end up amounting to nothing more than a hill of beans.
But there is one company out there whose power far outweighs the usual suspects one normally sees come and go on the fringes of cable. This company is a superpower that not only survived the dot-com bust, but flourished; a company whose brand now ranks up there with the most recognizable in the world.
And the reason I am writing this today is to alert you — the leaders of the MSO community — that this company has launched a product that is a Trojan Horse within your walls (or more to the point, metaphorically; a deadly computer virus in the e-mail sitting in your inbox from Aunt Jess and Uncle Irv).
The company I’m talking about is Yahoo! Inc.
(And in case you’re wondering; the punctuation is mine. I know Yahoo! uses an exclamation point as an element of its brand name, but mine’s there for emphasis; to make a point. Mine’s there because Yahoo!’s relationship with your customers is threatening one of your most important revenue streams.)
By now, I’m sure you have all read that a few weeks ago Yahoo! launched Yahoo! Music, a $6.99-per-month subscription service that allows customers to download music from a catalogue of over a million songs. That service — which, in a slightly different form, once cost more than twice that amount — was met with a crush of news stories, many of which called it a redefining moment in the music business.
In one, USA Today cited a Jupiter Research analyst who claimed that this year roughly $300 million of the $33 billion music market will be generated from music downloads.
Admittedly, in light of the revenue generated by cable, that’s small potatoes. But the same analyst also predicted that by 2009, the download market will increase to $1.7 billion, and that over half that amount will be from subscriptions.
That’s an important word in Yahoo!’s business model: subscriptions. And if you are aware of how Yahoo! Music works, you know why.
The model is rather simple. For a monthly subscription fee, customers (many of whom already subscribe to one of your high-speed services) can download music and build playlists of songs. The longer they subscribe — and the more songs they download — the more their lists grow.
What is brilliant about this strategy is that, unlike going into a Tower Records or Barnes & Noble, they’re not actually buying music. They’re renting it. And central to the user’s agreement with Yahoo! is the tacit understanding that they can enjoy their playlists for as long as they pay their monthly membership dues.
But the minute any customer disconnects, his rights to the music, and all those play-lists he’s painstakingly assembled and reassembled, disappear like they didn’t exist.
Think about that. Unlike a cable subscription, in which the consumer accumulates only the merest of equities over the course of months, and even years, with Yahoo! Music every month that passes — and every song that gets added to a user’s playlist — the customers has accumulated yet one more compelling reason not to disconnect.
And now comes the scary part.
Think about Yahoo!’s relationship with SBC Communications Inc., and its vested interest in DSL. And think about the capital investment that SBC and other phone companies have made in fiber, moving it closer to the home and increasing the speed of their DSL service.
Should cable’s superiority in speed be marginalized by faster DSL speeds, the cable modem will have lost one of its most compelling selling points. And once that happens, the high-speed marketplace will become a battle of the brands.
As much as people may subscribe to high-speed services like Comcast.net now, a lot of them are still so wedded to their old Yahoo! e-mail addresses, they’ve retained them even as they’ve transferred their business to you.
Consider the power of the Yahoo! brand, the continued erosion of cable’s edge in speed, and the fact that Yahoo! Music is not only growing exponentially but has a business plan that carries a steep price for disconnecting. How long do you think it will be before DSL does to cable’s high-speed business what DBS did to its video business?
So what should operators do? I think they should do the same thing they’ve always done. Evolve.
Who’s to say that MSOs can’t provide a music download service every bit as compelling as Yahoo! Music? Given their relationship to the content community, who’s to say that can’t develop one that’s even better?
In fact, Charter Communications Inc. and Adelphia Communications Corp. have both recently launched their own branded-music services. Each is powered by the same music library that provides content for AOL Music, Yahoo! Music Unlimited and Virgin Digital.
Remember, it wasn’t that long ago that original cable programming was a pale imitation of broadcast fare. But now, thanks in part to the MSOs, cable programming is a gold standard. The same can happen in the music-subscription business.
For my money, it’s time cable operators consider the possibility that they’re giving away something they’ve worked years to achieve.
My problem is I just don’t see how companies like Yahoo! bring any value to the cable customer’s online experience.
I urge cable operators to think about that, and to keep in mind that there’s little in the virtual world that Yahoo! can do that they can’t do better.