Rise of the Millennials: The Perfect Storm of Change for Cable

There are two major stresses on the current MSO business model -- technology and changing consumer demographics.  Here is an overview of both:

Changing Technology

The technological change in the cable ecosystem over the past decade was provided by Craig Moffett, Senior Research Analyst for MoffettNathanson LLC.  "For the last ten years we believed that the Telcos would overbuild cable with fiber on a large scale,” he said. “But now that is largely behind us. Actually only 20% of the US will be overbuilt. Telcos have largely gone negative. Operators in the latest quarter are more than 100% of the market growth share."

Moffett also spoke about usage-based pricing and the notion of a transport charge. “It is not a new idea but ten years later, it is an unusual mechanism in the industry,” he explained. For the first time I heard it confirmed that cord-cutting is real. “The data didn't show cord-cutting until 2010 but previously it did not offset household growth,” Moffett continued. “But now there is some loss in the ecosystem. The last three quarters have seen a huge increase in new household formation according to the U.S. census. Yet at the same time there has been no improvement in pay TV subscriptions.” Offering one bright spot he added, “The rate of cord-cutting is getting worse compared to last year but the rate of decline is slowing.”

The business model is also stressed by declining usage. Moffett reported that, “Live plus 7 viewing across every age demo has experienced huge declines, except among older viewers. There are ratings pressures among adults 18-49 prime C3 rating with long term ratings declines.” So if the challenge is to increase among non-users, know that this group is old, poor, uneducated and doesn't own a computer.

Changing Consumer Demographics

The ideal target consumer group is the Millennials who are young, tech savvy and have years of spending potential ahead of them. But they are hard to reach and are not necessarily subscribing to cable according to Jason Dorsey, CSO for the Center for Generational Kinetics and a Millennial himself.

What are the trends according to Dorsey?

1. Parenting style matters. “What really shapes identity in a group is parenting. How you are raised is the greatest indicator of what you will do. Our parents are Boomers and parenting leads to behaviors.” Millennials are late bloomers compared to their Boomer parents. “At what age do you consider someone to be an adult?” he asked the audience. “When you are no longer supported by your parents, hold a job and start your own household?” Some said “18,” others “21.” But according to Dorsey, “Millennials say age 30. They are five years older than Boomers were in starting their first job. They are entering the workforce later than before and starting households later. Today's 28 year olds are three years behind where other generations were at age 28.”
2. Technology. “We have different relationships with technology by how we age and it is hidden until we have to interact. My daughter will think that the Jetsons are the past. She will never know a time when you could not see the person who you are talking to on the phone.”
3. Delivery matters. For cable operators, Dorsey cautioned, “I would need to learn a new skill to use the technology the way you are delivering it. You are serving five generations at one time. That has never happened before. It has created all types of new issues.”
4. Communication styles differ. The ways to communicate with Millennials are different from other groups. “We can’t read cursive,” Dorsey said, “so we send you a text.” Millennials want short, fast and easy. “We don’t do phone calls. It is an invasion of privacy. A five minute voice mail is like a podcast.”
5. A unique mindset. “Millennials are driving change but it is not change to us,” Dorsey noted. “We don't think we are a part of a generation. We are special and unique. We have gotten ribbons for {coming in] 12th place.”
6. Diversity. Millennials are the most diverse generation in U.S. history. “We don't see diversity until it is absent,” Dorsey said.
7. Upside potential. “We have more college degrees than any other generation and more college debt, which affects future decisions,” he explained. “We are the fastest growing generation in the workforce and the largest generation in the workforce. Our generation is entering the wealth accumulation phase. We are 25% of all new millionaires. We are poised to outspend Boomers in 2017.”
8. Different spending patterns. But the spending patterns of today’s 18-34s are different from past generations. Dorsey explained, “The 18-34 demo is based on the life stage of that group in 1963 when you had two kids and a mortgage. We are 26 and we bought one car and our mom helped. We are still sampling.”
9. Tech dependency. Despite the perception that Millennials are tech savvy, according to Dorsey, they are not. “Millennials are not tech savvy. They are tech dependent. This is a critical distinction. We don't know how tech works but we know we can’t live without it. Boomers invented the mobile phone. The tech savvy generation is Gen X because they were there when the hardware and software came together. By the time tech got to Millennials, it was how simple can you make it so it just works with the fewest number of clicks possible. Text is the most preferred method of communication.”

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