The tyranny of too much solves cable's choice dilemma

The New York Times had a great article on Sunday about how cable TV companies are reacting to the FCC's demand that consumers should be able to buy just the cable channels they want instead of today's channel bundles. The article lays out the conflict between consumers and cable companies this way:

Without bundling, programmers like Disney and Viacom might no longer be able to afford shows with smaller but loyal followings. Under the current system, they can produce niche channels like ESPN Classic because they are bundled with ESPN and other channels, the programmers say.


For the most part, the F.C.C. rolls its watchdog eyes and notes that the price of expanded basic has increased well beyond other goods and services over the past few years. It and the cable association have drawers full of studies disputing the other's studies about their studies. Kevin J. Martin, the F.C.C. chairman, showed up briefly in Atlanta to reiterate that he was not giving up the fight, even after recently cajoling cable companies to agree to put together a new, smaller tier of family-oriented channels that was a few dollars less than extended basic. "Putting more control in the hands of consumers is always good," he said.

But Forrester colleague and good friend Maribel Lopez has a nice counterpoint noting that pushing choice onto consumers doesn't always work either.

Strangely, these colliding views make sense. When asked whether they want total choice, especially from historically monopolistic quasi-utilities, it's no shock that most people say: heck, yes. Yet, as the author and psychology professor Barry Schwartz and two of his colleagues pointed out a few weeks ago in The New York Times Magazine, Americans have this funny habit of confusing freedom, which they cherish, with choice, which can give them headaches.


"We're definitely at an overwhelming number of options," Maribel D. Lopez, a media analyst at Forrester Research, told me. "It's frequently difficult to understand what you're buying. There's also different content that goes on different devices. We run the risk of consumers moving to indecision because they have a lot of choice."

Maribel notes one of the biggest contradictions in consumer behavior caused by what we call the tyranny of too much: more choices actually reduces consumer buying. As an example, Vanguard Investments and Columbia University did a study on retirement accounts, and discovered that every ten choices added to a retirement plan reduces participation by two percent. Consumers get overwhelmed by choice.


The other challenge facing the cable companies is that consumers do have more options today. Verizon and at&t are rapidly rolling out TV services in many locales. DirectTV is still fighting for the cable subscriber. And many TV shows are available on the Internet, either through downloading services like iTunes or through less sanctioned means like bitTorrent. So if cable operators don't get this right, they could see real defections from their subscriber base.


So what should cable companies do? Blackfriars believes they should embrace the FCC's decision and actively market a la carte channels. But at the same time, cable companies should offer simple bundles with the most popular choices. While a small number of consumers will actually sign up for the a la carte services, a much larger number will be overwhelmed with their choices and sign up happily for the bundles. The result: the cable companies can offer the consumer choice, while garnering nearly all the revenue they currently get through bundles. Moreover, they'll remove objections to their service that might force subscribers to switch to other vendors.


This is one of those marketing cases where testing actual buying behavior has a huge effect on the best offer to the market. The only question is who will find the win-win for consumers and operators first: the FCC, the cable companies, or their competitors.

Technorati Tags: Apple, Bundling, Business, Cable, Consumers, FCC, HDTV, iTunes, Maribel Lopez, Marketing, Opinion, TV, Tyranny of too much, Verizon