For cable companies looking for ways to sustain growth in their maturing U.S. video businesses, young consumers like Diana Guay Dixon may become the industry's biggest problem yet.
Annoyed by a costly monthly cable bill driven up by sports channels she didn't watch, Dixon, 29 years old, canceled her cable subscription with Cox Communications Inc. earlier this year. She and her husband still rely on Cox for landline phone and broadband service, but they now watch their favorite shows and movies through subscriptions to Netflix Inc. (NFLX) and Hulu Plus.
"Once I realized that Netflix and Hulu Plus combined were cheaper than cable, it was a no-brainer," Dixon said in an interview over email. Hulu is owned by a consortium of investors including News Corp. (NWS, NWSA), which owns this newswire.
Dixon is at the upper-end of the so-called "millennial" generation of viewers broadly defined as those born between 1983 and 1997. Cable operators are looking for new ways to reach such tech-saavy and budget-minded consumers like Dixon before they leave home and consider "cutting the cord."
The industry's efforts include launching local, high-school sports TV channels; promoting young-adult reality shows; and customizing monthly bills for roommates. While millennials are likely to opt for low-cost services from cable companies, they are poised to become the industry's most lucrative subscribers as they start their own families and grow their earnings power.
"They are worth less now but [they] will ultimately become our best customers if we treat them right," said Peter Stern, chief strategy officer at Time Warner Cable Inc. (TWC).
Cable operators already face real hurdles to growing their video-subscription businesses, where they have lost millions of video customers in recent years, due in part to rival services like Verizon Wireless's FiOS service or AT&T's (T) U-Verse.
And while there's little definitive evidence that cable operators are already losing subscribers to cord-cutting, research suggests it will become a bigger problem for the industry going forward.
A survey by Deloitte earlier this year found that 19% of young millennials were considering canceling their paid-TV service on the premise that they could watch all of their favorite shows online for free--a sentiment shared by only 7% of their parents. More than a third of millennials said they had watched a favorite show in the past six months over a free Internet site, a percentage twice as high as their parents.
Comcast Corp. (CMCSA, CMCSK), which is the country's largest cable operator by subscribers, has in recent years sought out new young subscribers through marketing efforts like giving away packing boxes and laptop sleeves at large universities.
In addition to promoting services through contests advertised on Facebook Inc. (FB), the Philadelphia-based company also has promoted original-content series like "Jump Shipp," a reality TV series about avoiding the pitfalls of an unsatisfying first job and a "quarter-life crisis," produced by Halogen TV.
Millennials "are the sweet spot of what media is trying to reach," said Marcien Jenckes, a senior vice president at Comcast who heads the company's video division. "We have to go to school on the ways consumers expect to get their content."
Meanwhile, Cablevision Systems Corp. (CVC) has launched a local high-school sports and school events network, "MSG Varsity," aimed at attracting millennial viewers at 600 high schools in its service areas. Coverage on "MSG Varsity," the name reflects Cablevision's ties to Madison Square Garden Co. (MSG), includes school games, academic events and other student-produced content.
Rather than focus on content and marketing efforts, Time Warner Cable is experimenting with new ways to charge and service budget-minded millennial consumers. Those efforts include seeking ways to split a monthly cable bill between multiple roommates, offer lower-priced service for budget-conscious viewers and provide pre-wired service in college apartments.
The major cable operators point to their efforts to expand over-the-top viewing options as a response to the millennial generation's increased demand for mobile and Web-based viewing access.
A consortium of big cable companies including Comcast, Time Warner Cable and Cablevision Monday announced a new agreement through which they share access to around 50,000 wireless hotspots. Comcast also introduced new services Tuesday for its Xfinity voice subscribers that allow them to make calls and texts over wireless data networks at home and at wi-fi hotspots for free.
Cablevision, meanwhile, has aggressively rolled out its offering of on-demand video and "TV To Go" services that allow subscribers to access content on Microsoft Corp.'s (MSFT) Xbox, tablets and other devices.
Earlier this year, Comcast and Walt Disney Co. (DIS) struck a wide-ranging deal allowing Comcast to lock in prices and distribute Disney brands, including ABC Family and the Disney Channel on box tops and over-the-top devices.
One hurdle for cable operators remains finding ways to incorporate advertising revenue into the over-the-top viewing habits of millennial viewers. Such concerns have been highlighted of late by the launch of new ad-skipping technology from satellite-TV operator Dish Network Corp. (DISH), which broadcast executives have said could result in higher programming fees if advertisers are cut out of the viewing experience.
"Whatever consumer experience there is, we have to make sure there are ways for the networks to monetize it," Jenckes said.
-By William Launder, Dow Jones Newswires; 212-416-3412; firstname.lastname@example.org